Treasury says GM loan repayment was proper

A U.S. Treasury Department official acknowledged that General Motors repaid loans from the U.S. and Canadian governments with funds from those same governments, but said that was always the plan.

Last week, Sen. Charles Grassley, R-Iowa, said in a letter to Treasury Secretary Timothy Geithner that the loan repayment GM is touting in ads “appears to be nothing more than an elaborate TARP money shuffle.”

Herbert Allison, assistant treasury secretary for financial stability, responded to Grassley on Geithner’s behalf. In a letter, he said the loan was repaid from an escrow account at GM, not at the Treasury as Grassley had stated.

However, “The money used to fund the escrow account came from a portion of the proceeds of a loan made by both the Treasury and the Canadian goverment. The escrowed funds were expected to be used for extraordinary expenses, and a portion of the funds were so used,” Allison wrote.

He pointed out that, “It has long been public knowledge that GM would use these specific funds to repay the Treasury and Canadian loans, if it did not otherwise need them for expenses.”

Allison added, “In making its April 20 loan repayment, GM determined that it did not need to retain the escrowed funds for expenses. The fact that GM made that determination and repaid the remaining $4.7 billion to the U.S. govenrment now is good news for the company, our investment and the American people.”